Despite the availability of Medicare, out-of-pocket health care costs are substantial for many older persons. It is of considerable public policy importance to understand the impact of these costs; yet recent information on the size, composition, distribution, and financial burden of out-of-pocket health care costs of older persons is surprisingly scant, and there are many methodological problems with widely-cited estimates. Using newly available data from the Medicare Current Beneficiary Survey, we aim to provide new insight on the impact of out-of-pocket health care costs on elderly persons. These analyses will identify the characteristics of older people which predict high out-of-pocket costs; provide a better understanding of the role of privately purchased supplemental insurance, employer-provided retiree insurance, Medicaid, and other programs in protecting older people from such costs; characterize recent trends in out-of-pocket costs and the changing roles of pharmaceutical costs, physician costs, insurance premium costs, long-term care costs, and other health care costs in total out-of-pocket expenditures; and identify the prevalence and predictors of out-of-pocket costs which are financially burdensome in relation to income. Using data from the MCBS Cost and Use public use files for 1992 through 1994, we will prepare initial empirical papers describing the composition and distribution of out-of-pocket costs among the elderly living in the community; relating these costs to individuals' age, health status, level of functional impairment, income, and other individual characteristics; and analyzing the prevalence and predictors of high out-of-pocket costs as defined by several alternative criteria. We will also develop and validate methods and measures needed for a more ambitious research proposal which will use MCBS data to provide an in-depth picture of the extent, distribution, and composition of the elderly's out-of-pocket health care costs, addressing several key methodological problems with the use of MCBS data for this purpose and making recommendations to the survey producers for future improvements to MCBS. The proposed study will provide detailed description of the elderly's out-of-pocket costs; place these costs in the context of elderly individuals' economic, demographic, and health characteristics; and identify the specific predictors of financially burdensome costs, providing information critically needed to inform Medicare, Medicaid, and other health care financing policies.